Small Trader Reactions to Consecutive Earnings Surprises
نویسندگان
چکیده
This paper tests whether traders react more strongly as a series of similar earnings surprises continues, as predicted by several important behavioral finance models. We compile measures of buying and selling from NYSE TAQ data for a large ten-year sample. Results show strong, consistent, evidence that small traders exhibit an increasing reaction – with significant increases in reaction strength between the first, second, and third surprises. Large traders do not exhibit an increase, with similar reactions to each surprise. We find additional support for prior results that post-earnings-announcement drift is weaker for each subsequent surprise in a series. JEL Classifications: G14, G10, G12, M41
منابع مشابه
Consecutive Earnings Surprises: Small and Large Trader Reactions
Prior research demonstrates that investors respond differently to earnings surprises that are part of a string of consecutive earnings increases or surprises than to those that are not. To shed light on who values these patterns, I compare trading responses of small and large traders to earnings surprises that occur during a series of positive or negative surprises. I find that the relative int...
متن کاملTitle: Do Transient Institutions Overreact to Small Negative Earnings Surprises? for This Workshop Only Do Not Quote Do Not Circulate Do Transient Institutions Overreact to Small Negative Earnings Surprises?
Using a proprietary database of institutional investors’ stock transactions, we examine whether transient institutions overreact to the announcement of small negative earnings surprises defined as quarterly earnings that fall short of analysts’ consensus forecasts by one cent. Transient institutions’ selling in response to the announcement of small negative earnings surprises is significant and...
متن کاملACCOUNTING INFORMATION AND CORPORATE GOVERNANCE Market and Analyst Reactions to Earnings of Firms Engaged in Proxy Contests
This paper studies market and analyst reactions to earnings (i) during a proxy contest for board seats and (ii) after a proxy-contest-induced management change. Despite indications of earnings management during the proxy contest, market and analyst reactions are more pronounced than in prior periods, and earnings surprises explain more of the cross-sectional variation in these reactions. Market...
متن کاملAnomalous Price Behavior Following Earnings Surprises: Does Representativeness Cause Overreaction?∗
Behavioral Finance aims to explain empirical anomalies by introducing investor psychology as a determinant of asset pricing. This study provides strong evidence that anomalous stock price behavior following earnings announcements is due to a representativeness bias. It investigates current and past earnings surprises and subsequent market reaction for listed US companies over the period 1983-19...
متن کاملStreaks in Earnings Surprises and the Cross-Section of Stock Returns
The gambler’s fallacy (Rabin, 2002) predicts that trends bias investor expectations. Consistent with this prediction, we find that investors underreact to streaks of consecutive earnings surprises with the same sign. When the most recent earnings surprise extends a streak, post-earnings announcement drift is strong and significant. In contrast, the drift is negligible following the termination ...
متن کامل